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January 20, 2014

Barron's 2014 Midyear Roundtable Highlight

The U.S. bond market is mispriced relative to other major bond markets, except Germany's, perhaps. It doesn't make sense that comparable French government bonds yield 50 basis points less than the 10-year Treasury. If the dollar holds up or strengthens slightly against other major currencies, it will create an arbitrage situation that puts downward pressure on U.S. yields....

The world economy will disappoint. The U.S. will perform best. China is slowing dramatically, causing contraction in the emerging world. Europe has seen an improvement in bond yields, due to arbitrage opportunities, but has virtually no economic growth. The U.S. could be the exception in seeing 2.5% or 3% growth, largely because consumer prices will remain depressed. If I'm right, commodity prices will remain soft, and the U.S. dollar could be stronger.